The Office of General Counsel issued the following opinion on October 27, 2003,
representing the position of the New York State Insurance Department.

RE: Sharing of Commission

Question Presented:

May a former broker of record, who is licensed as an insurance broker
in New York and is now employed by the insured, accept a share of the commission for the
placement of the insureds accident and health insurance from the current broker of
record?

Conclusion:

A former broker of record, who is licensed as an insurance broker in
New York and is now employed by the insured, may accept a share of the commission for the
placement of the insureds accident and health insurance from the current broker of
record provided that neither broker engages in illegal, dishonest, or untrustworthy
conduct.

Facts:

The following facts were presented: in the 1980s, a licensed
insurance broker began placing health insurance for a company that designs and
manufactures theatrical and Halloween costumes. The company continued to place this
coverage through such broker until recently, when another licensed insurance broker was
named the broker of record. In the meantime, prior to the changing of brokers, the
original insurance broker of record accepted employment with this company as their general
manager of purchasing, where he is in charge of purchasing materials and overseeing the
companys catalogue and Canadian operations. The employment does not involve his
placing the companys insurance business or deciding upon renewals, although he does
review the policies to ensure proper coverage is in place for his employer. When the new
broker was named, he made an agreement with the former broker to share the commission on
the accident and health insurance placed with this company going forward, presumably as a
matter of courtesy. It was not stated whether the employer is aware of this commission
sharing arrangement.

Analysis:

In general, there is no Insurance Law statute or regulation that
precludes the sharing of commissions between brokers excepting N.Y. Ins. Law § 2128
(McKinney 2000) and N.Y. Comp. Codes R. & Regs. tit. 11, §§ 29.1  29.6 (Reg.
87), which prohibit, under certain circumstances, the acceptance of commissions arising
from insurance coverages or services placed on behalf of New York governmental entities.
Thus, licensed insurance brokers may share commissions, provided there is no illegal,
dishonest or untrustworthy conduct in the making of such agreement.

N.Y. Ins. Law § 4224 (McKinney Supp. 2003) states in relevant part:

(b) No insurer doing in this state the business of accident and health
insurance, as specified in paragraph three of subsection (a) of section one thousand one
hundred thirteen of this chapter, and no officer or agent of such insurer and no licensed
insurance broker, and no employee or other representative of such insurer, agent or broker
shall:

(1) make or permit any unfair discrimination between individuals of the
same class in the amount of premiums, policy fees, or rates charged for any policy of
accident and health insurance, or in the benefits payable thereon, or in any of the terms
or conditions of such policies, or in any other manner whatsoever;

(2) refuse to insure, refuse to continue to insure or limit the amount,
extent or kind of coverage available to an individual, or charge a different rate for the
same coverage solely because of the physical or mental disability, impairment or disease,
or prior history thereof, of the insured or potential insured, except where the refusal,
limitation or rate differential is permitted by law or regulation and is based on sound
actuarial principles or is related to actual or reasonably anticipated experience, in
which case the insurer, subject to the limitations contained in section twenty-six hundred
eleven of this chapter shall notify the insured or potential insured of the right to
receive, or to designate a medical professional to receive, the specific reason or reasons
for such refusal, limitation or rate differential;

(3) knowingly permit or offer to make or make, any policy of accident
and health insurance, other than as plainly expressed in the policy.

(c) No such life insurance company and no such savings and insurance
bank and no officer, agent, solicitor or representative thereof and no such insurer doing
in this state the business of accident and health insurance and no officer, agent,
solicitor or representative thereof, and no licensed insurance broker and no employee or
other representative of any such insurer, agent or broker, shall pay, allow or give, or
offer to pay, allow or give, directly or indirectly, as an inducement to any person to
insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such
inducement, or interdependent with any policy of life insurance or annuity contract or
policy of accident and health insurance, any stocks, bonds, or other securities, or any
dividends or profits accruing or to accrue thereon, or any valuable consideration or
inducement whatever not specified in such policy or contract; nor shall any person in this
state knowingly receive as such inducement, any rebate of premium or policy fee or any
special favor or advantage in the dividends or other benefits to accrue on any such policy
or contract, or knowingly receive any paid employment or contract for services of any
kind, or any valuable consideration or inducement whatever which is not specified in such
policy or contract.

Based on the facts provided, the former broker accepts the share of the
commission from the current broker of record, but the former broker does not share the
commission with his employer. Hence, the employer will not be considered to have received
a rebate of premium under N.Y. Ins. Law § 4224 providedthat the employer
has not offset the salary of its employee (the former broker of record) in any way based
on the commission the employee receives from the current broker of record.

It was stated that the former broker of record does not make the
determination for his employer as to whether the policy should be renewed. It was also
stated that the former broker of record reviews the accident and health insurance policies
"to ensure that they [are] satisfactory[.]" Although the former broker of record
is not responsible for renewing coverage, his recommendation that coverage is satisfactory
may influence his employers decision to renew. Where the employer is not aware that
its employee is receiving commission on a policy that he has reviewed and recommended, the
employer may not be able to make an informed decision as to whether to renew coverage
because the employer will not know that the employee may have an interest in suggesting
renewal. It is recommended that the former broker disclose to his employer the details of
the commission sharing arrangement. Lack of disclosure in this instance could be
considered a factor in determining whether the broker may be acting in an untrustworthy
manner within the meaning of N.Y. Ins. Law § 2110(a)(4) (McKinney 2000).

For further information you may contact Associate Attorney Sally Geisel
at the New York City Office.